5 Critical Factors For Determining What A Private Mortgage Note Is Worth

As private mortgage note buyers, you would be surprised at home many private note holders call me and say, “I have a $100,000 note on a home I sold. Can you tell me how much it’s worth?” That’s like saying, I have a 2,000 square foot house for sale. How much is it worth? Like any financial instrument or asset, private mortgage note values can be all over the board. To help clear up much of the confusion, here are the 5 key drivers in determining the value of a note. These drivers are in no particular order.


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  1. The down payment/equity in the property – A nice down payment and/or chunk of equity really helps the value of a note as it lowers the perceived risk for a note buyer.
  2. The amount of seasoning on the note – As with equity, a long period of seasoning lowers the perceived risk for a mortgage note buyer, therefore increasing the note’s value.
  3. The credit of the borrower – Decent credit for the borrower not only lowers risk but it may even make or break whether note buyers will even consider purchasing the note.
  4. The amortization period – Long amortization periods make for bigger discounts as note buyers are discounting future cash flows. The further out incoming cash is, the larger the discount. It’s simply a function of time.
  5. The interest rate of the note – If you had 2 notes that are identical in every way except for the interest rate, the higher rate note (depending on the difference) will be more valuable. This is due to higher monthly payments that when discounted, result in a higher present value.

So when estimating the value of a private mortgage note, you need to take into consideration the above elements of the note. Better yet, if you’re creating or considering creating a note, be sure and use your knowledge of these drivers so as to create a much more valuable mortgage note. The result will be more money in your pocket, even if you don’t sell a note.

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